- (1.) THIS is a writ petition under article 226 of the Constitution directed against the order passed under section 35 of the Income -tax Act, 1922 (hereinafter referred to as the 'Act'), dated the 31st March, 1962, where by the Income -tax Officer further reduced the rebate allowed under the second proviso 1(b) of Paragraph D of Part II of the First Schedule to the Finance Act of 1956, by reducing the paid up capital by that capital by that capital which carried a fixed rate of dividend with the ordinary shareholders.
(2.) THE facts leading up to the petition are these : The petitioner is a public limited company. The relevant assessment year is the assessment year 1956 -57, the accounting year being the year ending the 31st December, 1955. By an assessment order dated the 7th July, 1960, the total income of the petitioner was assessed at Rs. 48,21,860 and the amount of tax payable thereon was determined at Rs. 22,94,400. After adjusting payments of Rs. 14,00,000 made under sections 18A and 23B, the net demand payable arrived at was Rs. 8,93,658. Subsequently, by an order under section 35 of the Act dated the 9th August, 1960, the net demand payable was reduced to Rs. 8,84,505. The rectification made was not accepted by the petitioner and an appeal against that order is said to be pending. As penal interest was also levied, a revision against the latter order was filed before the Commissioner under section 33A, the prayer being for remission of penal interest under section 18A(6). This revision also is paid to be pending. The Income -tax Officer subsequently discovered that the rebate of corporation tax had not been reduced by the amount which was calculated on the excess of dividend declared over 6% of the paid up capital as required by the second proviso (i)(b) of Paragraph D, Part II, First Schedule, to the Finance Act of 1956. A notice was thereupon issued under section 35 of the Act to show cause why the necessary modification under the aforesaid provision of the Finance Act should not be carried out. The petitioner objected and finally on the 31st of March, 1962, the impugned order rectifying the assessment under section 35 was passed. It was held that not only the capital in respect of preference shares of Rs. 35 lakhs which carried a fixed dividend at 6% stood to be excluded but also the capital of Rs. 1,57,50,000 of preferred ordinary shares which carried a fixed dividend declared and paid to ordinary shareholders.
(3.) THE dividend on the preference shares of Rs. 35 lakhs at 6% worked out at Rs. 2,10,000 and at 4% fixed on preferred ordinary shares at Rs. 6,30,000. These two fixed dividends amounting to Rs. 8,40,000 and according to the Income -tax Officer stood to be excluded along with the share capital of preference shares of Rs. 35 lakhs and of Rs. 1,57,50,000 of preferred ordinary shares for the purpose of considering the reductions in rebate.;